Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
No you don’t. You just give your opinion on what one guy said. Shiller has even said that you should not time the market with CAPE.
No one with half a brain would take financial advice from a broke guy.
Shiller made an offhand comment once that could reasonably be interpreted in the way in which you are interpreting it. But that interpretation goes against the thrust of his entire life’s work. So I don’t think that’s what he was saying.
But I would sure like to hear him explore the question in depth. In everyone were thinking clearly, everyone on the planet would want that. Shiller was awarded a Nobel prize for his research. I have asked you scores of times to identify ways in which you have changed how you invest because of what you learned from Shiller’s research. You have never responded. That’s scary. That’s a problem.
Shiller added to our knowledge of this subject IN SOME WAY. What is it? What did he do? I think he showed that valuations affect long-term returns, If you think something different, you should be able to say what that different belief is. You can’t. You just want people to pretend that Shiller’s research doesn’t exist because Buy-and-Hold came first and, if we all pretend that Shiller’s research doesn’t exist, Buy-and-Hold can continue.
I want to get to the bottom of this, I want to open every site to honest posting re the peer-reviewed research. There’s nothing bad that can come from discussing the research. That’s how we learn.
We didn’t know that valuations affect long-term returns when the Buy-and-Hold strategy was being developed. How does knowing that change things? I think it changes things in a very big and very positive way. I think we need to discuss it. Lots of people won’t talk unless we knock off the funny business that we have seen coming from the Buy-and-Hold side of the table for 23 years now. We need to bring that awful stuff to a full and complete stop. I am not able to imagine any possible downside.
Rob
Are you enjoying your retirement? Did it all turn out like you expected?
This situation is certainly not something that I expected or could even have imagined as being possible.
It’s pretty darn exciting, however. We now know how stock investing works. The missing piece for many years was understanding the importance of valuation-based market timing to combat irrational exuberance. Now we have 44 years of peer-reviewed research showing us all the way to living richer and fuller and freer and better lives.
Has the behavior of you Goons in holding us all back been a major drag? Obviously. But, if we are fundamentally a good people (I believe that we are), we are going to find a way around you. I believe that it may happen in the days and years following the onset of the next Buy-and-Hold Crisis, when we will all see with our own eyes what it means when a majority of investors come to follow a pure Get Rich Quick approach (no market timing now!).
I see the good news being 20 times more good than the bad news is bad. I’m honored to be a part of the effort to transition us from Buy-and-Hold to Valuation-Informed Indexing.
Wish us luck!
Rob
“ It’s pretty darn exciting, however. We now know how stock investing works.”
Don’t you mean how you think it will work? We still haven’t had that big crash you keep talking about.
I can only go by what I believe, Anonymous. You can go by what you believe. I need to go by what I believe.
We had a crash in late 2008. However, prices had recovered by late 2009. That wasn’t enough to change people’s minds.
If Shiller is right that valuations affect long-term returns, then there is going to be another one in the not too distant future. It would certainly be fair to say that prices have remained high for a longer period of time in recent years than they did at any earlier time in U.S. history.
I get the sense that you drae some sort of comfort from that reality. It scares me. Improper prices cause people to make poor financial planning choices. So we have seen more poor financial planning in recent years than at any earlier time in U.S. history, Yippie, you know? I would permit honest posting re the peer-reviewed research, marketing considerations be darned.
My best wishes to you.
Rob
It doesn’t really matter what anyone believes once you reach your 60’s because then you either have the money or you don’t. There is no reset button. Time has run out.
Woe is me, Anonymous.
Rob
I am a bit lost here. Can someone tell me what the primary mission is of this website?
It’s to get every discussion board and blog on the internet opened to honest posting re the last 44 years of peer-reviewed research. Shiller published research in 1981 showing that valuations affect long-term returns. So investors who want to keep their risk profile constant over time (to Stay the Course in a meaningful way) are 100 percent required to practice valuation-based market timing.
Today’s CAPE value is 34. That’s scary. That’s slightly higher than the CAPE value that caused the Great Depression. We should all be working together to get that CAPE value down (of course, we never should have let it get that high in the first place. But the Buy-and-Holders get hostile when people point out the need for valuation-based market timing.
In the event that the stock market continues to perform in the future somewhat as it always has in the past, we will be seeing another Buy-and-Hold Crisis in the not-too-distant future. That will likely translate into millions of failed retirements, hundreds of thousands of business failures and millions of workers getting thrown out of their jobs. All of that awful stuff is optional today. If we permitted honest posting at every site, investors would know to lower their stock allocation at bit when prices got crazy high. The stock sales would pull prices back to reasonable levels. Stock prices are self-regulating when investors are aware of what the research shows.
But it doesn’t happen by magic. We all carry a Get Rich Quick urge within us. We all want bull markets to come consequence-free. We all want to believe in Buy-and-Hold. We all want to believe that our stock portfolio is really worth the number reported on our portfolio statement. If we were thinking clearly, we would adjust for the effect of irrational exuberance. At today’s CAPE, that would mean reducing the value of the portfolio by 50 percent.
Rob
I guess I need to read more. Honest posting? I am not sure what you mean by that, but people are able to post what they want, right? Also, we do seem to already know about failed retirements and it seems to me that it is common knowledge that our collective savings rate is pathetic. It just comes down to spending less than you make, consistent investing and avoiding debt. The concept is not hard, but most people lack the discipline to do that.
Most people need the discipline to practice valuation-based market timing, Mike. That IS hard. It goes against human nature. The history of the stock market shows what happens when people fail to practice price discipline when buying stocks. It’s a tragic story.\
Rob